Buy now, pay later customers will now face affordability checks under new regulation

Buy now, pay later (BNPL) customers will face affordability checks under new protections coming into force later this year, the City watchdog has announced. 

At present, there are no protections in place for consumers who use BNPL frequently, even though they may not be able to afford it. 

BNPL is a relatively recent borrowing method that allows consumers to make purchases using a loan from a third party. It is commonly available when shopping online and popular providers include Klarna, Clearpay and Afterpay. 

Borrowers will soon face checks, but also be able to complain to the Financial Ombudsman if something goes wrong. 

The new rules will come into force from 15 July 2026 and follow the Government’s decision to bring the BNPL sector under the FCA’s regulation. 

The FCA said the new rules would ‘help consumers navigate their financial lives, with appropriate support for consumers’. 

Around 11million consumers across Britain use BNPL, according to the regulator, with the market growing significantly in recent years, from £60million in 2017 to more than £13billion in 2024. 

What is changing?

From 15 July 2026, new regulations will come into force for BNPL providers. 

The BNPL sector will come under the FCA’s remit, and lenders will need to be authorised by the regulator to provide BNPL products.  

From July, BNPL borrowers must also be provided with clearer information about their agreement, including when payments will be due, the amounts, and what happens if a payment is missed.  

Borrowers must also undergo proportionate affordability checks under stronger protections coming into force from 15 July, the FCA said.   

Providers will also need to offer support to customers in financial difficulty, and, where appropriate, direct them to free debt advice.

If something goes wrong, consumers will also be able to complain to the Financial Ombudsman Service. 

The regulator said that its ‘proportionate’ approach would ensure BNPL can be accessed by consumers if lending is sustainable and would encourage firms to innovate and compete effectively in consumers’ interests.  

Sarah Pritchard, deputy chief executive at the FCA, said: ‘We want the Buy Now Pay Later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products. 

‘But crucially, no one should be lent to if they’re unable to repay, because that could worsen their financial situation. 

‘Now Parliament has given us the powers, we’re putting in place proportionate protections for the 11million people who use it.’

New rules broadly welcomed

The new BNPL regulations were broadly welcomed on Wednesday. 

Samuel Mather-Holgate, managing director of Mather and Murray Financial, told Newspage: ‘This area needed tightening up, because even though some BNPL might be interest free, the fees that are charged if you miss a payment bring that equivalent rate through the roof. 

‘The regulator needs to keep a close eye on this to avoid the next payday loan scandal.’

Alexander Berrai, deputy chief executive at emerchantpay, said: ‘The FCA’s decision to bring Buy Now, Pay Later under regulation is a necessary step for a sector that has become part of everyday payments. 

‘Proportionate affordability checks and clearer consumer information should help ensure BNPL is used responsibly and that consumers are not taking on credit they cannot reasonably repay.’

He added: ‘In the longer term, a more predictable, lower-risk environment may create better conditions for flexible repayment options for consumers, as well as more efficient pricing and improved commercial sustainability for both providers and their funding partners. 

‘While outcomes will depend on how the market develops, regulation sets an important framework.’

A spokesperson for Clearpay said: ‘Today’s announcement from the Financial Conduct Authority is the final step to bring Buy Now, Pay Later under formal regulation on 15 July 2026. We welcome regulation, which will establish a consistent operating environment and clear compliance standards for all providers.’ 

John Pauley, a partner at law firm Harper James, said: ‘The new buy now, pay later rules have been a long time coming, and they will be a significant shift for firms offering BNPL products.’

He added: ‘The FCA’s focus is particularly on third-party providers of unregulated BNPL, which it is referring to as Deferred Payment Credit, including firms that have operated without the relevant lending permissions.’